17 November, 2020
On September 25, 2020, the China Securities Regulatory Commission (CSRC), the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) jointly issued the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors and the Provisions on Issues Concerning the Implementation of the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors (collectively, “New Regulations”), which immediately garnered attention from foreign investors upon release. The New Regulations were officially implemented on November 1, 2020. To facilitate the implementation of the New Regulations, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange(SZSE, together with SSE as “Shanghai and Shenzhen Stock Exchanges” or “Exchanges”), the China Financial Futures Exchange (CFFEX) and the China Securities Depository and Clearing Corporation Limited (CSDC) respectively amended their existing detailed implementation rules on QFII/RQFIIs, as well as issued detailed business rules and notices (collectively, the “Detailed Rules”) on October 30, 2020.
Below we summarize the key provisions of the Detailed Rules.
I.Detailed Rules Stipulated by Exchanges
To align themselves with the New Regulations, the Shanghai and Shenzhen Stock Exchanges have amended their existing detailed implementation rules accordingly concerning the trading activities of QFII/RQFIIs by including depositary receipts, stock options, government-backed bonds, margin financing, securities borrowing and lending as well as bond repos in the permitted trading scope of QFII/RQFIIs. The specific varieties and trading methods for QFIIs/RQFIIs to trade stock options and bond repos will be separately released.
The CFFEX has also released the Circular on Matters Concerning Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional Investors Engaging in the Trading of Stock Index Futures, clarifying the varieties and trading methods for QFIIs/RQFIIs to engage in financial futures trading, namely, QFIIs/RQFIIs shall trade stock index futures in compliance with relevant administrative rules of the CFFEX on hedging.
It is worth noting that the Shanghai and Shenzhen Stock Exchanges have lowered the shareholding percentage of foreign investors in a single listed company which triggers the initial information disclosure obligation, namely, lowering the aggregate shareholding percentage of all QFIIs/RQFIIs and other foreign investors in a single exchange-listed company which triggers the initial information disclosure obligation from 26% to 24%.From November 1, 2020, if the aggregate shareholding percentage of all QFIIs/RQFIIs and other foreign investors in a single exchange-listed company exceeds 24% of the total number of shares of such company, the SSE/SZSE will announce on its respective official website the aggregate number of A-shares held by foreign investors in such companies and their corresponding proportion to the total number of shares in such companies before the market opening of the next trading day. The aforementioned lowering of shareholding percentage will help foreign investors promptly know about their shareholding status in a single listed company, so as to provide sufficient time for them to adjust their shareholding ratio in the company.
In addition, the Shanghai and Shenzhen Stock Exchanges have proposed a new requirement that the supervisor designated by QFII/RQFII shall monitor the investment activities and information disclosures of such QFII/RQFIIs. Where a QFII/RQFII is found to have violated the laws, regulations, administrative rules and exchange business rules concerning the trading of securities and their derivatives, the supervisor shall promptly halt such violations and report them to the Exchanges within ten trading days.
II.Detailed Rules on Securities Clearing Stipulated by CSDC
One of the most significant amendments made by the CSDC to the detailed rules on securities clearing is meant to enrich the types of clearing participants that QFIIs/RQFIIs may select. Specifically, it clarifies for the first time that securities companies may carry out clearing business for QFIIs/RQFIIs as clearing participants. In addition, the detailed rules on clearing specify that different securities accounts may choose different clearing participants. The next step will be for the CSDC to amend relevant business guidelines and organize relevant market institutions to participate in relevant preparation tests. At present, registration and clearing businesses concerning spot trading by QFIIs/RQFIIs on the National Equities Exchange and Quotations (NEEQ) have already been launched, whereas the date on which QFIIs/RQFIIs may engage in margin financing, securities borrowing and trading of stock options remains to be separately announced.
